Better bid as CPQ soothes IBM pain

Nortel warns of revenue miss, but shares gain

EmilyChurch

NEW YORK (CBS.MW) - U.S. big cap stocks were modestly higher in speculative trading ahead of the bell on Tuesday, catching on to a late swing in the Nasdaq as the market-stunning warning from IBM receded, aided by a raised revenue outlook from Compaq Computer.

Elsewhere, Nortel said first quarter revenue would be below expectations, but the stock saw gains ahead of the open.

IBM bounces

A reassuring outlook from Compaq
CPQ
late Monday that March quarter revenue will come in just ahead of estimates at $7.6 billion helped soothe sentiment after IBM's warning. The Compaq view supported earlier comments from market leader Dell Computer
DELL
on the quarter.

Broker CS First Boston told clients overnight "we believe these are "clean" results, as there are no signs of product stuffing by Compaq in any of the major distribution channels."

Nortel gains despite revenue warning

Nortel
NT
said sales for the quarter ending March would be approximately $2.9 billion, below the average analyst forecast compiled by Thomson Financial/First Call of $3.01 billion (see full story). Meanwhile, the stock rose 22 cents, or 6.1 percent, to $3.80 over the Redibook ECN.

Separately, Nortel said it has advised its banks that it will "fully draw" on its $1.75 billion bank facility, and plans to exercise its option to obtain an additional year of liquidity.

Futures tread higher

Stock futures took their cue from Compaq and IBM, with June S&P futures travelling 1.20 higher to 1,128.70, which was about 1 3/4-points above fair value. Nasdaq 100 futures were up 2.00, or about 6 points above fair value, at 1,405.00.

Among some tech-heavyweights trading in the pre-open, Cisco Systems
CSCO, +0.57%
was unchanged at $16.18, after seeing earlier gains, and Microsoft
MSFT, +1.25%
was bumped up 20 cents to $57.42.

Lehman Brothers told clients it expects Microsoft's April 18 fiscal third quarter results to meet or come in one penny higher than their estimate for earnings of 50 cents a share and revenue at $7.3 billion "with continued strength in the unearned revenue line year-over-year."

Lehman is further expecting the software giant to maintain a cautious outlook on PC growth.

Rebound, or false rally?

Analyst Dan Niles at Lehman Bros. said Monday's rebound in the semiconductor sector may be the beginning of another "false trading rally." The Phlx Semiconductor Index
SOX, -0.19%
was down as much as 4.4 percent in intraday trading Monday, weighed by the first-quarter warning from tech bellwether IBM, but closed the day up 0.6 percent at 575.87. Niles said the sector tracker could run up at least 10 percent from current levels, but believes it will fall into the "low 500s" by the summer, due to seasonality and high valuations in the sector.

Other analyst actions

J.P. Morgan Securities lowered its fiscal fourth quarter earnings per share and full year estimates and full year for FedEx
FDX, +1.12%
74 cents and $2.35, respectively citing rising fuel prices.

"With the price of oil rising approximately 22 percent since March 1, higher fuel costs and surcharges are poised to increase in first half of 2002."

CS First Boston lowered its first quarter per share estimate on AMR Corp
AMR, -21.55%
to a $3.75 loss from $3.50. "A new look at revenue trends suggests that, while AMR may be doing somewhat better sequentially than most of its peers, the year-over-year change is worse than we had modeled," the broker said.

Shares of Level 3 Communications Inc.
LVLT
may move. The Wall Street Journal is reporting, citing sources, that the company is poised to acquire one or more of its troubled competitors.

Alpha rallies, Citrix slumps

Alpha Industries
AHAA
surged 97 cents, or 6.7 percent, to $15.50 in pre-open trading after the company said its quad-band power amplifier module, designed into new-generation mobile phones, is scheduled to be introduced in Europe, the U.S. and Asia by a "top-tier wireless handset OEM" (original equipment manufacturer) in 2002. Financial details were not disclosed.

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